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Sector ETF’s exist as well. The lending on individual projects or funds the operate in the area are mostly private and difficult to evaluate.
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this sort of thing can be mitigated to flat out avoided
Maybe. Maybe not. That’s like the stock pickers saying “you shouldn’t have bought that stock, it was a bad stock, I wouldn’t have picked it.”
With mutual funds, you can actually go back and check the track record of the stock pickers and find out if they had talent or not. They usually don’t when you actually check the record. But there is no index in real estate. There is no real record for most property pickers.
That means nobody can verify much of anything, including your claimed returns (from which you do not seem to be subtracting anything for the value of your time, just like more real estate investors.) At doctor hourly rates, those costs are not insignificant.
I disagree. Your argument doesn't make sense. If there were issues with getting subcontractors, I wouldn't have a) done the deal b) have a back up or would assess what needed to be done instead of "buy now, will see later". You are investing with sponsor so you are stuck now.
WCI, I do put in work, but as time as gone along alot of RE has become fairly passive for me. Since there is not "index" in RE thats where your due diligence, intelligence and skills come in place - otherwise how would you make outsized returns? Too bad there is no "index" as you say; may be start compiling list of sponsors then...
And to me RE investing is business investing: how much time you spend on WCI? is it worth it ROI wise (uhh...yea). Well to me ROI on my business investment on time is totally worth it. This can be done by physicians but requires some initial homework and effort. Not necessary but RE is one of those accessible "business"/investment that can give you great returns. I would say effort to start a blog to make a buck (hey 80 or whatever other MDs trying to copy you) is = getting into active RE. Higher returns.
Here I'll do it for you. I am subtracting my value of time and my returns then are 16% YoY. Worthed.Comment
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I don’t like publicly marketed syndications due to the non-transparent pricing and agency risk. I’m not sure if it is that different to a structured financial product. At the end of the day, you have to take the investment bank or syndicators bid. Which is usually fine until things get nasty. So in that regard owning property directly takes out that agency risk for other risks. But I think the agency risk is much, much bigger than what most people suppose.
I completely agree.
You are an active RE investor dont_know_mind, like white.beard is on the forum and including me (I?) we can appreciate the benefits of that direct ownership.
I am not trying to convert anyone, but bottom line:
1. Funds are oversold and overhyped. Not bad, but lack of control is a real risk. (Passive RE)
2. You don't need RE to be successful. However, direct RE investment has great returns (+ benefits of learning business and other skills). These returns are net of your effort/time etc.Comment
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“If there were issues with getting subcontractors, I wouldn’t have a) done the deal b) have a back up or would assess what needed to be done “.
“Assessing “ is adding an awful lot. You can take over the job. General contracting is a business. It sounded like a large rehab job in Houston. Subcontracts and the bids are key. I can go get the guy painting crews next week.
One problem, it’s going to run way over what was planned. Why? Hurricane Harvey! Why? The first round of funding was just released and all types of rehab contractors are being sucked up big time. Fast track approvals are going the throw a big surge in demand.
So kick the GC and painter sub off and where are you at?
So now that you are GC, what is the plan?
He has one crew left that are relatives busting it 12 hrs/day basically doing him a favor. Lenders aren’t GC’s either directly or indirectly. Things do go wrong. That’s why cushion is built in. Work completed even at a loss.
Live to work the next project.Comment
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“If there were issues with getting subcontractors, I wouldn’t have a) done the deal b) have a back up or would assess what needed to be done “.
“Assessing “ is adding an awful lot. You can take over the job. General contracting is a business. It sounded like a large rehab job in Houston. Subcontracts and the bids are key. I can go get the guy painting crews next week.
One problem, it’s going to run way over what was planned. Why? Hurricane Harvey! Why? The first round of funding was just released and all types of rehab contractors are being sucked up big time. Fast track approvals are going the throw a big surge in demand.
So kick the GC and painter sub off and where are you at?
So now that you are GC, what is the plan?
He has one crew left that are relatives busting it 12 hrs/day basically doing him a favor. Lenders aren’t GC’s either directly or indirectly. Things do go wrong. That’s why cushion is built in. Work completed even at a loss.
Live to work the next project.
Sure. But atleast I am doing it on my own. To be honest I would worry more and actually would have my team (contractor contacts) do the job. And if it was such a large job, then have contingency that you may not find those contractors. Was that in the pro forma? more like hey IRR of 20%!
Who's saying things don't go wrong. As a direct owner though I have contacts and motivation to move fast and or anticipate such things better then a button click send money investor.Comment
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That’s a question for WCI. Direct owners got hit by Harvey too. Actually twice. This is the second wave.
Some direct owners had zero leverage and went bankrupt. Some VC’s speculated. Some will profit handsomely. It’s a business. Lending is a different business. Real estate development or rehab or contracting is not lending construction loans.Comment
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With this being such a small part of the portfolio to limit the downside, it does make me wonder: why even venture into this space at all? Adds a good layer of complexity and more tax filings with limited upside.Comment
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With this being such a small part of the portfolio to limit the downside, it does make me wonder: why even venture into this space at all? Adds a good layer of complexity and more tax filings with limited upside.
Its not limited upside though, if you run the business.Comment
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With this being such a small part of the portfolio to limit the downside, it does make me wonder: why even venture into this space at all? Adds a good layer of complexity and more tax filings with limited upside.
Its not limited upside though, if you run the business.
Correct, if you run the business. Investing in crowdfunded syndications are far from it. Even if you get lucky and return 20% on 0.5% of your portfolio, it falls under the category of so-inconsequential so as not to be worth the hassle, IMO.Comment
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With this being such a small part of the portfolio to limit the downside, it does make me wonder: why even venture into this space at all? Adds a good layer of complexity and more tax filings with limited upside.
This one investment is a small part of the portfolio. Real estate as a whole makes up 20% of my portfolio.That's not small and so far has been an excellent addition. And this investment is hardly a disaster, but I do expect it to trail pro-forma from here forward.Helping those who wear the white coat get a fair shake on Wall Street since 2011Comment
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But there is no index in real estate. There is no real record for most property pickers.
Real estate indexes exist. You may have to pay for some of the data. From Wikipedia residential RE indexes:
The Case-Shiller index prices are measured monthly and track repeat sales of houses using a modified version of the weighted-repeat sales methodology proposed by Karl Case and Robert Shiller and Allan Weiss. This means that, to a large extent, it is able to adjust for the quality of the homes sold, unlike simple averages. Specific indexes are available for specific metropolitan areas, and composite indexes for the top 20 and top 10 metro areas, and nationwide.
The US Federal Housing Finance Agency (formerly Office of Federal Housing Enterprise Oversight a.k.a. OFHEO) publishes the HPI index, a quarterly broad measure of the movement of single-family house prices. The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or refinancings on the same properties in 363 metropolises
FNC Inc. publishes the Residential Price Index, which is based on data collected from public records blended with data from real-time appraisals of property and neighborhood attributes. The RPI is the mortgage industry’s first hedonic price index for residential properties. The RPI is constructed to gauge price movement among non-distressed home sales, and excludes sales of foreclosed properties.[1]Specific indices are available for specific metropolitan areas, and composite indices are available for the top 10, 20, 30, and 100[2] metro areas. The RPI is also available at the zip code level and can be constructed to track price trends for specific characteristics (e.g., ranch-style house, colonial-style house, etc.) since preferences can change over time.
House Canary HPI
HouseCanary publishes monthly HPI data at block, block group, zipcode, metro division and metropolitan levels.
Those are home price indices. Very different from the return of a real estate investor.Helping those who wear the white coat get a fair shake on Wall Street since 2011Comment
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A number of posters talk about direct control of real estate. I think it would be awesome if someone (complete_newbie?) would be willing to write an article about the details of buying and managing property (or if someone has a good resource please share). I have been looking into adding real estate to my portfolio and am interesting in exploring options.
I find direct ownership intimidating as I don't have expertise in home repair / maintenance or contractor contacts. It seems like those that advocate direct ownership and purport that it is not overly time consuming often refer to having contractors and managers that are doing the leg work. Obviously syndicates and such have the risk that they may skim money or otherwise not have my interests as a priority but how do I find a managers and contractors who are reliable?Comment
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Sorry to hear this WCI. Yes, stay reasonably diversified everybody. There are a ton of sharks and sometimes just unavoidable situations that occur that we have no control of whatsoever.
I don't know...maybe it's just me but I never trusted the crowdfunding groups. But I've made my fair share of mistakes.Comment
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But there is no index in real estate. There is no real record for most property pickers.
Real estate indexes exist. You may have to pay for some of the data. From Wikipedia residential RE indexes:
The Case-Shiller index prices are measured monthly and track repeat sales of houses using a modified version of the weighted-repeat sales methodology proposed by Karl Case and Robert Shiller and Allan Weiss. This means that, to a large extent, it is able to adjust for the quality of the homes sold, unlike simple averages. Specific indexes are available for specific metropolitan areas, and composite indexes for the top 20 and top 10 metro areas, and nationwide.
The US Federal Housing Finance Agency (formerly Office of Federal Housing Enterprise Oversight a.k.a. OFHEO) publishes the HPI index, a quarterly broad measure of the movement of single-family house prices. The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or refinancings on the same properties in 363 metropolises
FNC Inc. publishes the Residential Price Index, which is based on data collected from public records blended with data from real-time appraisals of property and neighborhood attributes. The RPI is the mortgage industry’s first hedonic price index for residential properties. The RPI is constructed to gauge price movement among non-distressed home sales, and excludes sales of foreclosed properties.[1]Specific indices are available for specific metropolitan areas, and composite indices are available for the top 10, 20, 30, and 100[2] metro areas. The RPI is also available at the zip code level and can be constructed to track price trends for specific characteristics (e.g., ranch-style house, colonial-style house, etc.) since preferences can change over time.
House Canary HPI
HouseCanary publishes monthly HPI data at block, block group, zipcode, metro division and metropolitan levels.
Those are home price indices. Very different from the return of a real estate investor.
I think the real estate indices are a good place to start benchmarking returns. You can also impute returns for commercial sectors in particular areas. The actual return an investor gets will vary depending on leverage level and holding costs.
That's how I calculate my return vs benchmark. That is where I would start if I was assessing someone else's performance. They could say your return is less because of specific individual property factors, but that's what you're paying them to do - take specific risk. So if they're doing worse than the average they can't call it bad luck. Well they could, but they're not going to call it good luck rather than skill when it's the other way around.Comment
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